Financial Literacy: Is There Ever Enough?

“So… what do you do?” the high school athletes with whom I work will ask me while we’re running together at practice. Or they’ll ask me what I write about, having only heard obliquely my reference to my occupation.

“Lots of stuff,” I’ll say. “But I make most of my income writing about personal finance.”

I remember what I thought about personal finance when I was in high school. I thought it was so incredibly dull at age 15, I couldn’t even endure a semester on the subject; I “challenged” the class, taking a test instead of sitting through checkbook-balancing and budget-making and resume-writing. I was one of those who took naturally to money concepts (I think this may be typical of oldest children in large families, especially families in which money is tight), and I sailed through personal finance.

“Is that fun?” asked one of the runners last week. This answer would have blown me away in high school when I made up my sophomore year schedule.

“Yes, it is, I actually really enjoy it,” I said, even still a little surprised.

More financial literacy is always a good thing

I know a lot about personal finance–I’m comfortable calling myself an “expert”–but I certainly don’t know everything and there is so much I don’t do right. Yes, I know it would be better to budget my freelance income as my spending after I receive it rather than before; it would save me a lot in stress and expenditure-juggling. No, I shouldn’t spend so much on cafe costs–buying bagels and coffees and sandwiches and cookies for myself and my kids when we’re running around on errands and to meetings. If I used a personal escrow account, I could save at least 10% of many expenses by paying them annually instead of monthly. I could use the produce of my garden more efficiently and save a lot in fruit and vegetable expenditures (I threw away about six pounds of figs last week when I never got around to doing anything with them and they went bad — I felt terrible).

Every time I write a column here or on another web site, I am pushed to do something better. I am pushed to research the answer a little harder and focus more on smart money dealings.

I see every day how much I don’t know

But even more than the things I do wrong, there are the things I still don’t know. My favorite checkout guy at the grocery co-op told me the other day how it was now cheaper to run my bank card as credit, rather than debit, for most purchases. “I can’t keep it straight!” I said.

“It’s hard to do,” he said, “things are changing all the time.”

“But… I’m a personal finance writer,” I said miserably. “I should know this.”

He explained that banks with less than $10 billion in deposits, including most of the small community banks and credit unions that are popular with co-op members, are exempt from the Federal Reserve Board rules limiting transaction fees (the ones businesses pay to banks in order to process credit and debit cards) to “reasonable and proportional to the costs incurred by the issuer.” It’s thoroughly ironic that a business frequented by people who believe in shopping and investing locally pays different (and perhaps higher) transaction fees than large businesses with no local-investment values because of this value.

This new information had me committed to use cash more when shopping at these businesses I’m trying to support; cash, for them, has zero transaction fees. Even a personal finance writer can use continuing education in financial literacy.

I’m always wishing I was more financially literate; and I’m the financial literati!

I felt this was one of those universe-messaging moments; I’m being prompted to do something. Pass on what I know and keep learning more.

It’s financial literacy month, and as it’s also the month I start spending a lot of time with teenagers–I’m a volunteer coach from August through October–I’ve been trying to figure out how I can pay it forward to teenagers without showing up at practice with handouts and prepared lectures. So I was intrigued when I was introduced to CharitySub, a unique “community of givers” in which you subscribe (the sub) to give $5 each month to a different charity. Three are selected each month on a theme and, as you’ve probably guessed, August is “financial literacy.”

I volunteer coach because I love working with teenagers, and I never had what it takes to put up with the bureaucracy that comes with public schools (I can barely take the bureaucracy of being an unpaid volunteer). Coaching one sport isn’t a lot of interaction, but I’ve seen that even a small amount can make a difference, a community of nudges in the right direction, if you will.

That’s why I picked w!se, a financial literacy program aimed at high schoolers and young people who are survivors of domestic violence, to give my monthly five bucks. It’s curriculum that teaches kids about the things my woulda-been-dull high school personal finance class was supposed to; about the benefits of having a checking account, how to budget, and other basic things.

“Survivors say their experience at w!se has taught them more about managing money than their friends, family, TV or books,” says CharitySub.

(Note they didn’t mention web sites like ours)

I think there are a lot of pathways to financial literacy, and we might need to follow them all. It’s like learning a language, or being a lawyer, running cross country; it’s rarely the assumption that you’re done, you’ve finished, you can stop working. When I was running with the teenagers at camp last week at Silver Falls State Park, I was stunned to see how sore my quadriceps were after two days running the trails. “Why do I ache?” I asked the head coach plaintively. “I’ve been training on hills!”

“Not hills like these,” he said. The sharp up and down was a shock to muscle groups I just don’t use, running in the city.

Let’s all learn something new about our money

A lot of times I read through headlines on financial web sites and think, “oh, can there be anything new here?” And usually, after a few minutes, I realize, “yes.” I think we all loved Kristin Wong’s post on the cost of politeness–raise your hand if you said to yourself, “I totally do that”–and it’s worthwhile taking stock of our good and bad habits.

Sometimes literacy is just about (cue music from yoga class) being present in our financial decisions. For those of us who are financially literate, we can use this month celebrating financial literacy to give a little back to others and also reinvest in our own continuing financial education. Recognize the areas in which you hold somewhat less than a PhD of financial awesomeness. Learn something more, practice more, run up and down hills in a new way. After a few days of achiness, I promise, you’ll be so much stronger.

Where do you need to focus your financial continuing education? Where do you go for inspiration and fiscal strength training?

Kudos to you for actually putting your money where your mouth is and volunteering to help kids with financial literacy. We teach them trigonometry, but now how to spend less than they earn and create wealth.

As a former teacher, I’m wary every time someone says “schools need to teach x”. Schools increasingly take on the role of teaching what kids used to learn at home. Often parents demand high marks for their children but offer very little in support for their children’s learning. It’s not easy teaching students something that isn’t reinforced at home. (Like trying to teach healthy eating when parents are the ones making the unhealthy food choices.)

IMHO, financial literacy needs to be a whole-family initiative, not just teaching kids at school. If parents can’t teach their kids how to budget, spend less than they earn and avoid debt, then they are as much in need of financial literacy education as their kids.

I agree with you in principle, but in reality, many kids grow up without ever having seen a bill or a checkbook until they are adults & moved out of the house. In my case, my parents used money to control and hurt each other. I would never dream of asking my dad to show me the mortgage or our family’s electric bill because I would have been made to feel like I was intruding into subjects that were none of my business.

I didn’t learn about personal finance until I took an elective in college on a whim. Only then did I realize what kind of mess I had gotten myself into with the credit card I had foolishly signed up for. (Back then, credit card solicitors were allowed to set up shop on campus, and reel you in with offers of free stuff if you signed up for a card. My university ended up banning them after I had graduated.)

The reality is that not every parent can teach their child about these things without attaching some emotional baggage to it that may or may not be healthy.

If the subject is taught in school, at least the kids would have a rudimentary understanding of how it all works, even if they don’t implement it. I agree with another contributor who said learning about PF is arguably a more valuable life skill than learning how to calculate the hypotenuse of a right triangle.

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Elizabethsays:

20 August 2012 at 11:08 am

@CincyCat – I agree that children and teens should be taught this knowledge, but I also think we need to help parents and adults too.

Parents don’t have to show their kids the bills or discuss the mortgage. There are a lot of things they can do that schools can’t — set up a savings account and use it, let them work for money, learn how to set savings/spending priorities with an allowance, etc. Heck, even saying “no” once in a while would be a big help!

The financial literacy movement here in Canada even advocates that workplaces continue financial literacy (especially when it comes to saving for retirement and investing). A lot of companies have RRSP matching or stock options, yet do little to educate their employees about them.

IMHO, I think we need a holistic approach. Yes, schools can do a lot – but I don’t think they can bear the entire burden.

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Marcysays:

20 August 2012 at 12:34 pm

I think, if possible, financial literacy should be taught in the home & at school.

I taught in a district that incorporated the Junior Achievement programs in its schools. JA teaches financial literacy through experiential & hands-on programs. JA is utilized across America & even abroad. The programs use community volunteers. To learn more about JA, visit http://www.ja.org These are very worthwhile programs.

I can totally understand. It seems more and more that we are asking teachers to raise and parent our children.

However, I’m also deeply grateful that my school district incorporated a small amount of financial literacy into our 8th grade civics class. It basically amounted to a month-long homework project. At the beginning of the project, we randomly drew a salary and how many people were in our household. We had to create a budget for one month, along with meal plans, and lists of prices in our area to create a month’s worth of expenses. (We were also instructed on how to write a check and balance a checkbook.)

I learned more doing that one project than I ever had from my parents up to that point. (And they were pretty good about teaching me to have a savings account, etc.) However, aside from everything I learned by doing the project, it encouraged me to ask my parents questions about finances, which eventually led into discussions about CD ladders, the stock market, and Roth IRAs well before I went off to college.

Exactly! There IS always more to learn, but especially these days with the internet… new things, new apps, new companies, new fees, are happening at lightening pace, so there really is always more to learn and keep up with!

Regarding the swipe fees, regardless of your opinion on same, cash is not free to a business. There are costs associated with managing cash, getting it to the bank, loss or shrinkage, both in making change and through theft.

As for personal finance education. I think it should be taught in school, starting early. While I recall learning about currency and coins and making change in elementary school and a little on investing and the stock market in high school I don’t recall ever getting a good overview.

After college, I took an adult education class which has served me well. I graduated from college with just a little debt (credit card debt, my parents paid for my education) and entered the lucrative field (not) of social services. I decided that I needed to better understand my personal finances and took that adult ed class. I learned how to budget, learned how to calculate my net worth, the basics of investing and that little class got me started out right as an adult.

But, I am always learning more. I spend hours researching my stock picks, reading up about fund managers, etc. and I still feel like I am flying blind when it comes to retirement investing. Really our personal finances is my second job, both in managing it, thinking about it, researching it, writing about it (I don’t make any money doing so but it helps me learn and focus), talking about it, paying bills, etc.

I was pretty surprised when my food coop actually ran an article saying that they wanted us to use credit cards. I couldn’t quite tell for sure whether it was partly because they didn’t want to inconvenience us or because we tend to spend more money when we use them, but they definitely made the point that dealing with cash isn’t free–it takes more man hours to count it, for example. Now you might still rather have more coop money going to staff salaries than to bank fees, but you might want to just ask them what they would prefer if it were all the same to you.

Timely. Meeting with an objective, fee-based financial planner today, hoping to learn a bit more about retirement and investments. That has always been the area that I ‘just don’t know what I don’t know’.

We’re out of debt, saved a cash cushion, things are under control from a day to day standpoint… and now I’m thinking about what comes next.

Finances change, whether personally, or something new on the market. I think we tend to focus our learning on what is applicable to us now, and that will change as we go into different financial “phases”.

Sure, I am invested in my retirement now, but I’m not comparing prices on meds, or AARP insurance. I don’t have kids so I don’t know all that much about the 529, or life insurance, or the rate of increase for tuition.

I think even when you learn something, if you don’t use it, you lose it. I can’t imagine any one person knowing everything about finances all at the same time. Even with personal financing I like to be reminded about something that I once knew, and maybe forgot about.

The more I learn about personal finance (and this is an area of professional interest for me), the less important I think financial literacy is, at least in terms of investing. There are so many ways to nudge people to do the right thing, or at least the “good enough” thing (satisficing being generally better than optimizing once time and energy spent thinking about things is taken into account), without them having to worry their heads about it.

Even with something like debt repayment, emotions can be so much more important than knowledge. “Spend less than you earn” is not a difficult concept. Doing it is the hard part.

I think that’s one reason Dave Ramsey is so successful, even though more financially literate ppl know not to expect 10% stock returns, or that even if he’s half wrong you’re still not going to get half the returns because that’s not how compound interest works. (Being more financially literate makes his carrot look smaller.) He’s really good with the psychological tricks and general heuristics.

I agree w/ your review of Dave Ramsey. I feel much the same way about Suze Orman. They certainly are great at the motivational speeches (or, shame-fests, depending on your perspective). The other thing that bugs me is that DR or SO “converts” are so zealous about their methods, that they tend to be very condescending of others who are choosing a different (yet equally successful) path.

When it comes to investing, though, I really don’t want to know anything except how my portfolio is doing vs. the market. If my “line” is at, or above, the benchmark/averages, I’m a happy camper.

There are friends of mine who thoroughly enjoy watching every twitch of their stocks and spend a great deal of time trying to time/game the market (indeed, it is a hobby for them), but I just don’t have the inclination or the mental energy to care about it in that much detail. I probably never will…

Sure, low-fee target date funds is part of it– there’s also default options for trying to get people to actually put money away in their 401K, and all sorts of different heuristics that researchers have studied for people to get the right percentage in their funds (generally following what other people like you do is good enough, save more later options to get people to put in increasing amounts in a way that doesn’t hurt etc.). It’s a big and exciting area of research in behavioral economics.

The basics of how things work are important, though, and lots of people reach adulthood without them. Things like how to figure a percentage, the difference between simple and compound interest (that one makes a great graph), how to balance a checkbook, why you get an extra paycheck some months if you’re paid biweekly, that car/home repairs and insurance aren’t unexpected emergencies, but budgetable items.

I’ve taught some of that stuff to teens who literally never had anyone show it to them before, and I watched my mom similarly mentor young coworkers & neighbors who were competent adults who just never learned more than “don’t overdraft your checking account if you can help it”.

And when I was in my early 20s, friends would routinely ask me questions like “What’s a CD and why does my bank want me to have one?” and “I found an old savings bond in my drawer, what do I do with it?” because they knew I could ask my mom.

Great comment! I think there’s two components to being ‘competent’ with personal finance. One is basic factual information, and the second is what you point out…understanding your own psychology (motivators and trip-up points). Knowledge of both of these allows you to develop the most effective ‘attack plan’ for your own situation.

What I often see when I talk to people ranging from high school to their 30s, is that they aren’t tackling it because they just aren’t sure what to do or what order to do it in. DR and SO et al. are excellent at reaching wide audiences with simple plans for that, which is great.

I also agree that we need people to understand the ‘good enough’ concept when it comes to retirement investing. Most people are not going to make 10% returns on their retirement accounts (not since the 1990s anyway). But they don’t need to if they just start early. It’s the lost investing TIME that counts more than anything. It certainly hurt us that we didn’t get serious about it until we were 30 and 40 years old, respectively. :mourns:

People need to understand that they don’t need to learn nitty gritty details about investing unless they love that subject. Research shows that only highly educated investors beat the market average, and typically only by a couple of points.
I am in full support of hiring a fee-based financial planner if it makes you more comfortable, but for most people it isn’t NECESSARY…the extra couple points of growth you get are what you will be paying them in fees. For the average joe, a low-fee index fund is the way to go, IMHO.

The trick is, how do we teach people this young enough to make a difference?

I’ve really only started seriously learning about personal finance in the last year since I graduated from University. I hadn’t even heard the term “emergency fund” 18 months ago! I can’t even imagine not knowing that phrase now!!

In the UK at least, there is very little education about personal finance. It’s something that Martin over at Money Saving Expert is trying to persuade the government to change. It would probably have stopped/reduced friends racking up huge loans/credit cards to finance lifestyles they can’t afford!

One thing I love about the community at GRS, is that the vast majority of people who contribute here are blessedly free of this syndrome. People who post on GRS message boards do so constructively, and without condemnation. (This is certainly not the case on many other PF websites/blogs.)

Every now & then, a “savvier than thou” individual crops up who doesn’t seem to realize that we don’t treat each other that way here; but those are, thankfully, few & far between.

I love how you have found a way to at least share some PF wisdom with the kids who you coach. Personally, I think PF should be required at the high school level, since it is so critical to just about every facet of adulthood, but I realize that schools have resource constraints, and it isn’t likely to happen.

In a perfect world, PF would be taught at home, but the reality is that many times, parents are unable to do this. Either they simply lack the knowledge to teach their kids about these types of life skills, or they have an unhealthy relationship with money themselves due to past trauma from their own upbringing.

I think it is great that coaches & teachers step up and share what they know, even if it isn’t “required”. This is how society grows.

Loved this post! Even though I feel pretty financially literate, I too have a long way to go in terms of actually making the non-spending changes that I need to. I’ve read GRS for years, I’ve borrowed The Millionaire Next Door, TMM, Smart Couples Finished Rich and Your Money or Your Life and a host of others from the libary and read them, so I know all the things I “should” be doing, and I’m doing some things right but still over-spend when I know I shouldn’t. That’s where it’s tricky for me – the internalization of what I know and putting the textbook knowledge into action.

I especially liked the part in the post where the checkout clerk knew so much about the credit card practices. Shows you can’t judge a book by its apron.

There is a reason small local financial institutions were exempted from the limits. It’s expensive to operate debit card programs and manage fraud, and to conform to all the same regulatory requirements as the big guys. Small institutions use the fees mostly to cover their costs, not to make a killing.

I find sometimes learning financial literacy not invloves “learning” for me so much as “reminding”. I often pause when reading an article and think, “I did know this at one point, how could I have forgotten it?” Even reading the most simple posts can somtimes be great refreshers if you haven’t visited a particular PF subject in awhile.

I also like the idea of teaching PF at schools. And maybe instead of looking at it as an “either Calculus OR PF,” maybe we can figure out a way to incorporate PF examples into traditional math classes (e.g., “If you take out $20,000 in student loans and the interest rate is X%, how much will you pay in interest over 10 years?” or “If Jane makes $100 from babysitting, how much will she earn if she puts that into a savings account with an X% return?”)

In Ontario, the required half credit course on careers spends a class on student loans and financing post secondary education. It also has lessons on career research so students can see what options are out there, what schooling they need and how much they can potentially earn.

Calculating interest is part of our math curriculum here — is it not in the U.S.?

It is taught in the US, but in such an abstract & detached way, that it really doesn’t seem like it has anything to do with real life.

Only the most creative teachers would think to put it in terms of investing babysitting money (great idea, by the way).

On budgeting, there was one teacher I heard of who made her students calculate whether or not a part time job would be enough to pay for designer gym shoes and mani-pedis, on top of modest rent, living expenses, etc. She said that almost all of her students “got it” when put into terms they could relate to.

It certainly wasn’t when I was in school, but that was a long time ago (80s). Curriculum is often state-specific, too…

The only thing I remember being taught was what a checkbook was and how to balance it.

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JakeIL7says:

20 August 2012 at 12:30 pm

The problem with this suggestion is that finance (personal or otherwise), aside from the basic addition & multiplication, is implemented in a very different manner than things like basic algebra and calculus that is required by future education. It is done now, but maybe not to the degree it should be.

Also, as pointed out here again and again, PF is as much about psychology as it is about math (although the math is hard to get around)

I still don’t know how on earth Calculus related to my higher education, and I’m getting an MBA now. Algebra, yes (sometimes you need to figure out the “unknown” element), but I have had no use at all for Calculus since I didn’t go on to study quantitative analysis, science or engineering…

Where I live, you needed calculus to apply for university programs in math and science. I took math and science all the way through high school to keep my options open. (I’m assuming calculus is important for people looking to get into those high-earning STEM fields people on GRS go on about

As for me, I don’t use calculus or physics on a daily basis. Statistics and probability are much more useful.

I took a PF class when I was in high school. It covered the basics – we had to pretend we worked at a job making $X/hour, then had to budget for rent, transportation, etc. Part of the class also involved balancing a checkbook.

It definitely can’t hurt to have PF classes, but I don’t think it’s a cure, either. If kids don’t see the same lessons in place at home, they won’t see the real world applications of what they’ve learned.

Evidence on the effect of financial literacy classes is mixed. They’re required for high school in several states already. In general it looks like required financial literacy courses have zero effect on outcomes. Optional literacy courses do seem to help those who choose to take them, especially when offered by a company rather than in a K-12 setting.

This question is still an area of active research, one that the Social Security Administration has thrown a lot of money at in recent years.

What’s the curriculum though? If it’s just math, of course it won’t have an effect, just like knowing how to calculate when two trains will meet given their speed and departure times won’t help anyone cultivate the habit of getting up early to make their train on time–

I said this in my first “official” post here– math is easy, money is *very* complicated. With that in mind, a financial literacy curriculum should be a kind social and emotional training program, not lessons on how to calculate compound interest.

Ha ha, okay, but people do it all the time– either through sports or religious indoctrination or even gangs– gangs also socialize and emotionally train, in their own way. And 18 year olds who join the military– same thing.

As long as PF remains a boring “dry subject” it will make no impact in the teenage brain. “Calculate the yield of 10-year treasury bonds….” = *yawn*

Agreed! Though you raise an interesting point — people learn in all kinds of contexts. Some students aren’t going to internalize what they learn from teachers simply because it’s school. Bring in a volunteer or find a way to reach them outside of school (like Sarah’s conversation with students) and you can generate some interest. simply because it comes from a different source other than parents or teachers.

I think the challenge with children and teens is that they often don’t have context for that they’re learning. Most of them don’t have to budget, retirement is ridiculously far away and a lot of them don’t even have jobs. It takes a good teacher or volunteer to make PF real for them.

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Elizabethsays:

21 August 2012 at 4:37 am

I just wanted to say I enjoyed this post and the conversation it has generated

My two cents on the original question: I don’t think we ever stop learning about PF because our situation constantly changes. I know I’m always learning new things and I’m still learning about investing and finding balance. I learn new things as I reach new stages in my journey. For instance, I didn’t worry too much about retirement in my first career because there was a pension plan. When I changed jobs, I had to take a more active role in planning.

This post has me thinking about what I can to do help promote financial literacy rather than what I expect other people to do. No easy answers to that one, I’m afraid!

This is an informative and well-written article! I’ll be recommending it to everybody in my various professional circles.

For me, the biggest takeaway was this: “I see every day how much I don’t know.” Whether you work in finance or any other industry, this is a concept that far too many people overlook — regardless of how long they’ve worked in their field. Making an effort to learn something new every day is vital to a person’s ability to succeed, whether it be financially, professionally or personally.

To answer the question posed in the headline: there cannot be enough and there will never be enough. Why? Because the issue for most folks is not financial literacy, but behavioral economics. In other words, knowledge helps, but the hard part is changing our habits. Do that (like automatically deducting $100 per paycheck from you first “real job”) and you change everything.

Investing is often thought to be on the fringe of personal finance, when it’s actually one of the most important pieces, imho. We tend to forget this because he FDIC insures all of our savings deposits (at quite a price!), so we don’t have to worry about which bank we use in that regard. In PF blogs, we’re always told to save, contribute to a retirement account, put money in high-yield savings, etc. But, imo, there’s not enough info on how to choose amongst particular investments (I always enjoy Robert Brokamp’s posts). Anyone who lived through the savings and loan, dot com, or housing crises knows that understanding your investments (IRA, 401K, etc.), is very important. You can cut your morning coffee and cable, but that’s not going to protect your retirement account from an economic downturn.

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